Is your strategy fit for a digital world?

In an age where incumbents are facing a perfect storm of change, one must rethink ones approach towards corporate strategy and embrace the exponential nature of a platform or ecosystem strategy rather than sticking to a traditional linear product-centric approach. Failing to make this transition of strategic mindset will spell certain death for your business.

Like in every other behavioral change this starts with the realization that the world of tomorrow will differ from yesterday and the awareness that your own past success may be your future worst enemy. You might have gotten where you are today with the aid of traditional strategic planning consisting of a vast array of descriptive analysis of your current environment with the certainty that the external environment will stay the same for the duration of the five-year plans that spell out milestones like beads on a strong following a linear trajectory.

At the same time, it is unlikely that every incumbent has the potential prerequisites to become the next Amazon. Even though not every company is able to take a leadership role in a digital ecosystem, every company need a platform strategy and at the same time tend to existing business and deliver on market and shareholder expectations.

To manage this duality, the organization need to be able to operate at two speeds both at a strategic and operational level. While this may simple, it requires the organization to deploy different skillsets and governance principles to maintain a two-speed approach to strategy. In order for companies to successfully reinvent themselves, it is imperative to separate the incremental development of existing business areas from the exponential nature of new digital opportunities and business models.

It is important to keep in mind that it is not technology that defines digital business models, but rather their ability to create exponential value. It was not the technology that up-ended the music industry; it was Apples ability to create a digital ecosystem surrounding music distribution. In order to capture the exponential value of digital business models, leaders must embrace an exponential mindset and focus on creating something new rather than incrementally improving on the past. Exponential growth is a concept that is inherently hard to grasp for human beings, as we tend to understand the world in a linear fashion. To put things into perspective, an incremental mindset sees 10% growth as an ambitious target, where an exponential mindset is out for 10X.

The digital world also operates by a different rulebook than the brick and mortar industries of the past that act as the fundament for most of our strategic frameworks, rendering many of the tools for strategic planning obsolete.

A platform or complement strategy differs from a product strategy in that it requires an external ecosystem to generate complementary product or service innovations and build positive feedback between the complements and the platform. The effect is much greater potential for innovation and growth than a single product-oriented firm can generate alone. Scale increases the value of a digital ecosystem, helping it attract additional complementary offerings, which in turn brings in more users and increase the value of the ecosystem. A successful digital ecosystem manages to repeat this process.

In a world of digital ecosystems, industry boundaries are blurry, and yesterday’s customers and partners could become the competitors of tomorrow. At the same time, collaboration is key to find your place in a digital ecosystem environment. Is your approach to strategy catering to the necessary agility in this environment?

Relying on a wait and see approach has been a comfortable position for incumbents for years, and may still act as an excuse to stick with what you know for a while longer. The challenge with this approach is that when faced with disruptive innovation, one is left blindsided and unable to act when challenges to existing business models arise. The winner takes it all dynamics of the digital world favors those who dare to be early movers and solidify their position.

Is your organization ready to embrace digital and its implications on the core business? IT is no longer a supporting function, and a mentality that business and IT are separate entities lays the fundamental for failure. At the heart of every platform strategy lies APIs, and the ability to utilize APIs to drive business value. Having the technical capability that acts as a fundament for your platform as well as the ability to connect and collaborate with partners is a key success factor.

With the technical foundation in place, one needs to make sure your platform has enough gravity to attract and retain both customers and partners. For transaction platforms, both producers and consumers must be present to achieve critical mass. Apple needed to attract both developers and users. Similarly, eBay needed both buyers and sellers. Do you have a plan to establish and utilize potential network effects of your digital platform?

Developing and executing a platform strategy usually involve the necessity to take a leap of faith at some point. You will not have all the answers, and when that day comes you are most likely too late to act.

With this in mind, there is no one-size fits all platform- or digital strategy, and rather than setting a rigorous roadmap, a platform strategy should follow a clear vision with customer centricity as the main focal point.

Formulating a strategy may seem challenging enough, but the key success factor is implementing a platform strategy and an exponential mindset across the organization. This transition often means challenging ones existing business model, so communication is key to create a sense of ownership throughout the organization. Strategic governance must transition from rules to principles and tactical decisions should be made at the lowest level possible. In order to achieve this, one must scrap mandates and empower employees with a mission. Instead of telling your employees to build a bridge, you should tell them that we need to cross the river and let them figure out the best way to do so.

One thought on “Is your strategy fit for a digital world?”

I fully agree with you views here. In fact in Europe, banks like Buddybank had started on this journey, as early as 2014, to create a digital ecosystem. As per them, traditional banking products is only 25% of what their clients day to day needs. They wanted to go after the rest of the 75%. They talked about banking as a concierge service.

While a lot is said about the need for a digital ecosystem, banks are still adopting a wait and watch approach. They are all aware of this, but most of them are not taking the lead. They are struggling to create relevant use cases which proves the point that many of these banks perhaps don’t know their customer or are not customer centric.